What lessons can we learn from saving for retirement in the United States? • Forbes Network • Forbes Mexico
The Mexican Retirement Savings System (SAR) is robust and well-focused, and offers countless advantages over the previous retirement model in Mexico. Mexican Afores have recently been rewarded around the world for their good investment strategies and the recent 2019-2020 reforms have reinforced this. However, it is a constantly evolving model, so it is worth reviewing the successes that other countries have had with regard to retirement and retirement.
What can we learn from what has been done recently in the United States? 2021 version of our report How to save America He points out that one setup that could work well is to make it easier for workers to save for retirement using automated investing strategies.
There is a trend in the United States in which companies offer retirement plans to their employees with automated strategies in which employees do not necessarily have to decide when and how to participate or allocate funds to invest. This is where one of the important facilitators, lifecycle funds, comes into play.
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One of the adjustments made in Mexico specifically with these recent reforms was to establish that alphoris invest workers’ resources in life cycle funds, creating 10 of these funds, also known as generational funds; Before, the five core Siefores were based on target risk funds.
Life cycle funds are the option most American workers use to save for their retirement, currently 99% of US retirement savings plans offer these funds, up from 82% in 2011.[1]
This choice occurs because one of the main characteristics of life cycle funds is that they have an automated investment strategy that adjusts the risk profile and investment ratios by asset types as the worker’s retirement date approaches. For example, increasing equity investment during the early years and preference for fixed income at the end of the fund’s life.
These automatic adjustments avoid some of the shortcomings we saw earlier in Mexico, when Afores had to move resources from one Siefore foundation to another, when workers reached a certain age. These movements, although meticulously and efficiently planned and executed, had a cost and impact on Afores and savers, so it is positive that they were eliminated.
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In addition to the above, professionally managed intergenerational funds, as in Mexico with Afores which has become widely popular in the United States, always allow to invest money from each individual account in the most effective way for the benefit of the individual – hard work, all in a simple way and process. Thanks to this trend, American workers are enjoying increasingly better diversification and less equity exposure in their retirement plans.[2]
These multiple benefits are availed especially by the youngest workers in the United States. To be clear: 75% of our users with a defined contribution retirement plan who invest their savings in a single lifecycle fund are under the age of 35.[3]
What about voluntary savings?
It is undoubtedly the outstanding issue in Mexico and a point that has not been reinforced with previous reforms, since individual accounts with voluntary contributions in the country are still few. Henceforth, it will be useful to analyze the automatic voluntary savings method where, for hypotheticalThe employer shall take an additional percentage to that specified by law from the worker’s salary and deposit it in his payment as voluntary savings or in a personal retirement plan, with the understanding that the worker may request his withdrawal from this service at any automatic time. .
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This voluntary automation works very well, as experience shows that almost no one decides to opt out of these automated methods; It is the best way to combat a lack of insight and other obstacles that savers face when starting a voluntary savings plan.
What was seen in the United States indicates that plans with the automatic enrollment method more than tripled between 2007 and 2020, and that more than half of our customers specifically in that country have automated plans.[4]
This quick analysis of the retirement situation in the United States, which can be in-depth How to save America The year 2021 indicates that Mexico is on the right track and the improvements that have been made in recent years are strengthening the retirement situation for Mexicans. It also takes into account the usefulness of the current Defined Contribution Scheme and the individual accounts professionally managed by Afores.
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[1] How to Save America 2021 – The Vanguard Group Inc. Pag. 72 [2] How to Save America 2021 – The Vanguard Group Inc. Pag. 80 [3] How to Save America 2021 – The Vanguard Group Inc. Pag. 77 [4] How to Save America 2021 – The Vanguard Group Inc. Pag. 4
Juan Hernandez, Director General of Vanguard Latin America*
The opinions expressed are the sole responsibility of their authors and are completely independent of the position and editorial line Forbes Mexico.
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